Euro rises against dollar on signals of Fed action

The euro rose against the dollar Tuesday after Federal Reserve Chairman Ben Bernanke said the Fed might take more action to help revive the U.S. economy.

The prospect of Fed action, along with news reports that European officials are coordinating a bank rescue, reversed a slide that had pushed the euro to a nine-month low against the dollar and a 10-year low against the Japanese yen.

The euro rose to $1.3361 at 4:28 p.m. Eastern time, from $1.3225 late Monday. It rose to 102.67 yen from 101.11.

Bernanke told Congress that the economy is growing more slowly than he anticipated. He also said the Fed is prepared to take further action to help reduce unemployment and boost growth.

Many traders took that as a sign that the Fed will buy more bonds to try to lower interest rates and ease the flow of credit. Bond-buying increases the number of dollars in circulation. That makes the dollar less attractive by diluting the value of traders' holdings.

Lower rates also make a currency less attractive because they reduce the return that traders can expect from many bonds. Currencies with higher interest rates generally are more attractive.

The euro was helped by signals from the European Central Bank Tuesday that interest-rate cuts there are unlikely. ECB President Jean-Claude Trichet said the central bank should focus on preventing inflation. Cutting rates generally increases the risk of inflation.

Some traders had expected the ECB to cut rates to help revive Europe's economy, which is barely growing.

In other trading, the British pound rose to $1.5489 from $1.5471 late Monday.

The dollar fell against several major currencies after Bernanke's downbeat remarks. It fell to .9165 Swiss franc from .9180 late Monday. It dropped to 76.81 yen from 76.96 late Monday.